Chillin' out till it needs to be funded
With Sanofi Aventis going ahead with its $69 a share bid for bio major Genzyme at a 31% premium to its last month’s share transactions, It is but evident that not much good sense can prevail in the heat of a board going after a deal and as usual expensive mistakes will keep pharmaceuticals and healthcare a off the charts expensive sector for most investors. Not to stretch a mean poit or unnecessarily conjecture a relationship with insurer AIG that has still not found a buyer or a fair valuation for many of its parts, but the pharmaceutical big 4, including both Novartis and Sanofi need to realise that these costs are what is marking them for life and that they cannot be through with their restructuring or completing their portfolio unless they learn to manage costs ( and we are not necessarily talking outsourcing)
Deals have moved on to a different sphere in value after two generations of deals gone sour from RJR Nabisco to even hose from China in a couple of years ago. Today’s investors are far less forgiving of expensive portfolio gap fills esp as cultural issues anyway never bear fruction to integration of
the combined entity. In such cases where even a Kraft getting into arguably an equally entreating market was very careful with valuations and due diligence for a known brand and here we are still playing with wood fired barbecues for retail investors with 30% and more premuium over stock market darling valuations leaving much more negaives showing to the deal.
A Glaxo’s or even J&J examle makes much more sense and even Pfizer’s investment in New drugss may be excused but investing in bio premium niches has been shown to be far less costly and far more remunerative than may be outlined for the Genzyme deal. While J&J could absorb recalls and Glaxo afford to sell mandatory drugs at throwaway prices in new collaboration, one costly mistake may necessarily bring both Sanofi Aventis and Novartis to their knees.
Meanwhile dealmaking in the much in demand emerging markets has come to be a landmark in terms of costs and valuations with 4 out of 5 deals proving to be in the value investing range except for large deals limited to telecom acquisitions by Airtel in Africa and Cairn’s pending buyout by London based Vedanta which are still both at reasonable and even economically less than fair valuations much also like bargain picks by Banco Santander in new markets in Europe